It seems like as soon as you purchase a device, be it a server or a phone, it becomes obsolete. Advances in technology are developing so rapidly it becomes difficult for business owners to spend a lot of money on something that will need to be replaced just a few years down the road.

With an onsite server, a company needs to pay for maintenance, licensing, and in many cases additional hardware specifically for the server such as a battery backup unit. There is also associated cooling costs for the server room area. Hardly surprising, many SMB companies are opting instead for cloud-based services to reduce the cost of hardware ownership for things like an onsite server.

Global Server Sales Plummet (Again)

Indeed, according to Gartner, Inc hardware server sales are declining worldwide. With a 4.5% revenue decline in the first quarter of 2017 over the same time frame of 2016, and a 4.2% decline in server shipments. Although HP Enterprise still has the lion’s share of the market, the company showed -8.7% growth.

Third-party reports, meanwhile, suggest Microsoft Azure and Amazon Web Services are pressuring HPE’s hardware margins. A surprising trend? Hardly. Don’t forget that Microsoft killed Windows Small Business Server way back in 2012 — a full five years ago — amid the anticipated shift to Azure and Office 365.

Still, there are pockets of optimism in the server market.. Dell EMC was the only company in the top 5 server vendors to show positive revenue growth in the report. Part of this growth can be attributed to the company’s focus on Asian markets. Dell has a workforce based in China that is familiar with doing deals in that country, and according to the report, the Asia/Pacific market is the only area worldwide that also posted growth in server shipments and revenue.

Another reason Dell could be leading the pack is the company’s Data Center Solutions (DCS) unit that sells explicitly to hyperscalers, which saw growth in the middle 30% range. As the IT needs of the SMB market changes from being a necessity to having an onsite server to looking for data centers that can deliver a cloud based virtual server, the data centers will take on more of the burden of hardware costs. This model not only benefits the SMB companies utilizing a data center financially but can also assist with allowing employees to work from any location securely, without additional costs to the SMB.

As more companies, especially in the SMB market, look to cloud solutions and SaaS models I believe we will continue to see this decline in server sales in that market, and an increase in sales for hyperscalers.